Chap 11 Accounting Test - 28% (10 out of 36 correct)...

28% (10 out of 36 correct) Responses to questions are indicated by the symbol. 1. The time period for classifying a liability as current is one year or the operating cycle, whichever is: A. longer. B. shorter. C. probable. D. possible. Liabilities are classified as current if they will be paid with current assets within one year or the current operating cycle, whichever is longer, not shorter. 2. To be classified as a current liability, how or when must a debt be expected to be paid? A. Out of existing current assets B. By creating other current liabilities C. Beyond one year D. Either out of existing current assets or by creating other current liabilities This answer is correct but there is a better answer. 3. Which one of the following is not a typical current liability? A. Sales taxes payable B. Bonds payable C. Unearned revenue D. FICA taxes payable Sales taxes are normally paid at least quarterly and often monthly as required by various governmental agencies. 4. On September 1, 2012, Banner Co. borrowed $70,000 from the City Bank for five months at 9%. Interest was properly accrued on December 31, 2012. What entry is needed to record the payment of the note and accrued interest on the due date? A. Notes Payable 70,000

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Interest Payable 2,100 Interest Expense 525 Cash 72,625 B. Notes Payable 72,625 Cash 72,625 C. Interest Payable 2,625 Notes Payable 70,000 Cash 72,625 D. Interest Expense 2,625 Notes Payable 70,000 Cash 72,625 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding. At December 31, four months of interest were properly accrued and recognized in the notes payable account. An additional month of interest is recognized at the maturity date to be expensed in 2012. 5. Buttner Company borrows $88,500 on September 1, 2012, from Harrington State Bank by signing an $88,500, 12%, one-year note. How much is accrued interest at December 31, 2012? A. $2,655 B. $3,540 C. $4,425 D. $10,620 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding. At December 31, four months of interest should be accrued. 6. RS Company borrowed $70,000 on December 1 on a 6-month, 12% note. Which statement is true at December 31? A. Neither the note payable nor the interest payable is a current liability. B. The note payable is a current liability, but the interest payable is not. C. The interest payable is a current liability, but the note payable is not. D. Both the note payable and the interest payable are current liabilities.

A current liability is a debt the company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within the next year or the operating cycle, whichever is longer. 7.

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